Armenia raises rate 100 bps, inflation expectations high

    Armenia's central bank raised its benchmark refinancing rate by a further 100 basis points to 9.50 percent due to continued high inflationary expectations in in financial markets and economic agents despite slower economic growth toward the end of last year.
    The Central Bank of Armenia (CBA), which raised its rate in December 2014 by 175 basis points to head off inflationary pressures from a rapid depreciation of its dram currency after cutting rates earlier in the year, said in a statement from Jan. 22 that the move was decided at an extraordinary board meeting on Jan. 21.
    In addition to raising its refinancing rate, the CBA cut the Lombard rate by 300 basis points to 17 percent, noting that foreign exchange market pressures were easing. In December the CBA had raised the Lombard rate by 175 basis points.
    The board's regular meeting is scheduled for Feb. 10 when it will also publish its first quarter monetary policy report.
    Armenia's inflation rate rose to 4.6 percent in December from 2.59 percent in November. The CBA targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
    Armenia's dram currency started tumbling in November, pulled down by the depreciation of the Russian ruble and the reduced inflow of remittances. Russia is Armenia's main trading partner.
    From Nov. 1 to Dec. 17, the dram fell by 16 percent against the U.S. dollar but since then its has bounced back, trading at 473 to the dollar today, up 0.5 percent since the start of the year but still down 13 percent since Nov. 1, 2014.

    Armenia's Gross Domestic Product expanded by an annual 5.3 percent in the third quarter of last year, up from 2.3 percent in the second quarter.
    The CBA said the "domestic economy eased somewhat by the end of 2014," a more pessimistic assessment that in December when it said economic growth in the fourth quarter was expected to be within the bank's target of 3.1-3.6 percent.
    The government has acknowledged that growth in 2014 would be below the initially projected 5.2 percent.
    On Dec. 30 the International Monetary Fund estimated that Armenia's GDP growth would slow to 2.6 percent in 2014 from 3.5 percent in 2013 but then pick up to 3.3 percent in 2015, helped by the central bank's policy easing in 2013/14 and stronger capital budget execution.

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